Inflation hawks might want to take a closer look at China’s latest data, which just go to show how warped their worldview is becoming.

Anyone bracing for Federal Reserve rate hikes or a Japanese bond-market crash clearly isn’t considering the deflationary currents coursing through the world’s second-biggest economy. I’m not referring only to today’s news that producer prices in China fell for a record-tying 31st month in September. Evidence is mounting that consumer prices are on a similar trajectory as exports wane, the nation’s property slump deepens and consumers and businesses grow cautious.

China’s darkening data raises new questions about Janet Yellen’s efforts to wrap up the Fed’s bond purchase program next month. It’s looking like the global financial system will need all the liquidity it can muster, not less. That means the European Central Bank will have to give up fantasies of avoiding its own multiyear entanglement with quantitative easing. In all likelihood, Bank of Japan Governor Haruhiko Kuroda will have to persist in his ambitious yen-printing program.

Deflation in China isn’t a catastrophe, so much as a symptom of weak global demand. From New York to Shanghai, bank credit is weak, consumption is depressed and manufacturing activity is flashing warning signs. The slump in global oil prices also suggests slower growth ahead. We may eventually look back at last month’s initial public offering by Chinese e-commerce giant Alibaba as the top tick for the global economy.

How might all this play out in China? Oddly, a deflationary scare could be just what President Xi Jinping needs right now. Outside observers often overestimate how much power Chinese leaders wield and underestimate the strength of the vested interests entrenched throughout the economy. The shock of falling prices could give Xi useful ammunition as he tries to shift growth drivers away from excessive investment and exports to domestic demand.

What he must avoid is the opposite: panic. The only way to steer China away from a massive debt meltdown is to resist new stimulus. That would only further imperil banks and local-government finances. It would set the nation up for an even bigger reckoning down the road — one that could bring economies from Australia to Brazil down with it. This scenario becomes more likely if Chinese data turn even uglier in the months ahead.

A few worrisome data sets are no reason to bet on a Chinese crash. But inflation-phobes downplay the significance of the 1.8 percent drop in China’s factory-gate prices in September at their own peril. It was Nobel laureate Milton Friedman who taught us that deflation, like inflation, is always and everywhere a monetary phenomenon. The problem is that we live in a time when the opposite seems to be true (look no further than Japan). It’s now China’s turn to demonstrate a point all too many economic ideologues are still missing.

William Pesek is a Bloomberg View columnist based in Tokyo who writes on economics, markets and politics throughout the Asia-Pacific region

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